Oil & Gas

Oil and gas prices have declined precipitously in the past year, roiling the industry. Major producers have curtailed projects and cut budgets by 50% to 65%, US rig counts have dropped 50% during the past year, and asset values have declined precipitously due to the market imbalance of acreage assets and oilfield equipment.

Lower for longer” is the new consensus view among experts.  Until now, companies have been able to rely heavily on debt financing due to the high tolerance for risk in the credit markets. The widespread use of reserve-based revolving credit facilities, where reserves are valued twice per year and the determination of the borrowing base is largely left to the lender’s discretion, spells trouble for borrowers when redeterminations are made. While all industry participants face challenges in the current environment, the challenges, as well as potential solutions, vary by size and position in the value chain.

Large E&P Companies Businesses are countering revenue declines by significantly reducing capital expenditures, laying off workers, and relying on hedge contracts and existing cash balances. However, new challenges will exist once existing hedge contracts expire, cash balances decline and borrowing base redeterminations are made.  Possible finance options include:
• Drawing down revolvers
• Extending near-term maturities
• Accessing the junk bond market and equity raises

Mid-Size/Smaller E&P CompaniesThese companies are facing tougher times than the larger firms, as they don’t have significant hedge contracts, cash balances, or access to the capital markets.
• They face more difficulties than the large integrated majors because they do not have downstream operations to generate cash flow and generally do not have as many options for financing.
• Cutting operating costs, overhead and capital expenditures, through reductions in purchasing and layoffs, is essential to get to a breakeven level cash flow level, although existing commitments for drilling and other services can delay these cuts.

Getzler Henrich professionals have the knowledge and experience to assist companies throughout the industry in managing today’s difficult operating environment; solutions include:
Operate oil and gas properties on behalf of financial partners
• Improve the capital allocation process and be prudent stewards of capital (capital conservation vs. going for a Hail Mary)
Determine Breakeven Levels in an Uncertain Environment
• Cash flow basis
• P&L basis
Reduce Costs / Improve Productivity
• G&A
• Field operations
• Resolve compliance issues
• Provide forensic accounting services
Improve Cash Flow
• Cash flow projections, working capital management
• Asset / business unit divestitures

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